1. In year 1 the price level is constant and the nominal rate of interest is 6 percent. But in year 2 the inflation rate is 3 percent. If the real rate of interest is to remain at the same level in year 2 as it was in year 1, then in year 2 the nominal interest rate must:
A. rise by 9 percentage points.
B. rise by 3 percentage points.
C. fall by 3 percentage points.
D. rise by 6 percentage points.
2. The XYZ Corporation can make a real (inflation-adjusted) return on an investment of 9 percent. The nominal rate of interest is 13 percent and the rate of inflation is 7 percent. We can conclude that the:
A. investment will be profitable.
B. investment will be unprofitable.
C. real rate of interest is 4 percent.
D. real rate of interest is 2 percent.